1986 (9) TMI 60 - HC - Income Tax

Business Expenditure Change Of Law Depreciation Foreign Company Gratuity Written Down Value

Summary

Issues involved:
1. Allowability of gratuity as a deduction in business income.
2. Determination of written down value of fixed assets based on exchange rate.
3. Revision of written down value of assets due to change in definition of 'actual cost.'
4. Disallowance of loss on remittance of profits.
5. Allowability of expenses due to devaluation of Indian rupee.

Issue 1 - Gratuity Deduction:
The tribunal held that the actuarial valuation of the liability on account of gratuity was an allowable deduction in the computation of business profits for the assessment year 1967-68. The court referred to previous decisions emphasizing that the liability accrued under statutory provisions, even without a provision in the accounts, was deductible. Citing relevant case laws, the court ruled in favor of the assessee, allowing the deduction of gratuity liability as a revenue expenditure.

Issue 2 - Written Down Value of Fixed Assets:
The court referred to a previous decision involving the same assessee, determining that the written down value of fixed assets should be based on the rate of exchange with reference to specific dates. The court upheld this decision in favor of the Revenue, in line with the previous ruling.

Issue 3 - Revision of Written Down Value:
The court held that the written down value of assets acquired before April 1, 1961, should be computed according to the provisions of the Income-tax Act, 1961. This decision was based on a previous ruling and was in favor of the assessee.

Issue 4 - Disallowance of Loss on Remittance:
The court considered a loss incurred by the assessee due to fluctuations in the exchange rate when remitting profits to the UK. Initially disallowed by the Income-tax Officer and upheld by the Appellate Assistant Commissioner, the court overturned this decision. Citing relevant precedents, the court ruled that the extra amount paid for remittance of dividends was a legitimate business expenditure and deductible.

Issue 5 - Expenses due to Devaluation:
The court deliberated on additional expenses incurred by the assessee due to the devaluation of the Indian rupee in redeeming Sterling Debentures. Referring to past decisions, the court held that the extra expenditure was not incurred for the purpose of securing the loan and was of a capital nature, ruling in favor of the Revenue.

In conclusion, the court granted a certificate for appeal to the Supreme Court on substantial questions of law arising from specific issues. No costs were awarded in the matter.